(Bill Hall, editor of The Park Avenue Society and Weiss Family Million-Dollar Portfolio, is presenting the first of his weekly afternoon edition podcasts. Click here to listen. Below is an edited transcript of that podcast. Mike Larson’s afternoon column will return tomorrow.)

Hello, everyone. This is Bill Hall for Money and Markets. It is Wednesday, Aug. 27, and I am pleased to bring you my investment thoughts in this new, exciting podcast format. Today, I am going to give you some specific investments on how you can profit in a world where growth is hard to come by and stock valuations are full and lofty.

Indeed, taking a look at our first slide, we see that the growth in this most recent economic recovery is the slowest year-over-year growth that has been recorded in economic recoveries dating back to the 1950s. That means that we are indeed in a slow growth world.

(Note: Each year shown above indicates the start of an economic recovery.)

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In our second slide we see, and I want to remind all our listeners that there are only three components for stock market returns. That is right. All stock market returns can be broken down into three specific components. The first is dividends, the second is earnings growth, and the third is change in the price/earnings ratio. That means how much people are willing to pay for stocks.

As an example, let’s take a look at our third slide, which shows the components of stock market returns in 2013. We see that in 2013 the market was up a whopping 32 percent and that was comprised of 2 percent of the return from dividends, only 5 percent of the 32 percent was from earnings growth, leaving 25 percent coming from a change in the price/earnings ratio. That means that the 32 percent return that was achieved in 2013, the vast majority of it, the biggest piece of it came from people just willing to pay more for stocks than they were at the beginning of the year.

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And while I do not have a slide on it, if we were looking at this same analysis for 2014, the current year, we would see that the stock market is up about 9 percent so far this year. Some 2 percent of that 9 percent is from dividends, 5 percent from earnings growth. That is 7 percent total, leaving the remaining 2 percent coming from the fact that people are willing to pay a little bit more for stocks right now in August of 2014 than they were at the beginning of the year.

So in my view, the market is fully valued and, therefore, returns can only come from one of two places. One is earnings growth and the other is in dividends and we have just seen that we are indeed in a slow growth world. So what do investors do to achieve returns in this market?

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Looking at this fourth slide you will see that if your risk profile permits it, I am recommending and suggesting to some of my clients that they consider BDCs or business development companies. You can find all about BDCs by taking a look at the website in the link that I provided on this slide.

“Growth in this most recent economic recovery is the slowest since the 1950s.”

But for our purposes today, think about BDCs, or business development companies, as doing what banks used to do and that is make loans to middle-market companies, to smaller, privately held companies, not the Johnson & Johnsons of the world but to a regional distributor of food or a regional distributor of manufacturing equipment.

So we are not talking about the mom and pops and we are not talking about the global giants. What we are talking about are regional, privately held companies. And historically banks have made the loans to those companies. Right now, business development corporations are making those loans as a result of the banks being out of the lending business for a variety of regulatory reasons. BDCs can earn large returns on their loan portfolios, which they then pass through to the investors in their stock.

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On our final slide you will see two of my favorite BDCs. The first is Ares Capital, the symbol ARCC. Ares yields 8.8 percent. That means it pays a cash-on-cash dividend yield of 8.8 percent. Ares is the largest institutional type holding in the business development corporation segment of the market. It is the one that all of the institutions own if they are going to own it. It is the largest and it has a well established track record.

Another one of my favorites in the BDC area is TCP Capital Corp., symbol TCPC. It yields 8.5 percent. It is a lot smaller than Ares. Its track record is not as long but it has got a great management group and it has got a relatively new loan portfolio which provides a lot of high quality collateral.

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Now, again, BDCs are not for everyone. They are risky type investments as you can tell from the yield that they have. But if your risk profile permits, I believe that you should consider them because dividends are going to become a larger source of total return going forward as growth becomes harder and harder to find.

This is Bill Hall signing off for Money and Markets. I look forward to speaking with you again next week.

OTHER DEVELOPMENTS OF THE DAY

Best Buy Co. Inc.(BBY, Weiss Ratings B+) painted a depressing picture for investors after reporting disappointing quarterly results. “‘You cannot expect the same kind of growth rates that you saw a few years ago,’ “CEO Hubert Joly told the Wall Street Journal. The company said the holiday season would feature deep price cuts and lower sales as brick-and-mortar shops battle with online retailers for shoppers’ dollars. Overall, it was a pessimistic outlook for the electronics retailer, and it followed tempered-down forecasts by other big chains, such as Wal-Mart Stores Inc.(WMT, Weiss Ratings B) and Target Corp. (TGT, Weiss Ratings C+).

At least we can be assured that one segment of the economy is doing well: Tiffany & Co. (TIF, Weiss Ratings C+), the world’s second-largest luxury retail jeweler, reported a 16 percent rise in net profit to $124.1 million in the quarter ended July 31. That was 96 cents a share, up from 83 cents a year earlier and topping analyst projections of 85 cents. The company has been revamping its offerings, adding new designs, upgrading stores and reshuffling management. Analysts said rising stock markets have given the company’s wealthy customer base extra money to spend on luxury items.

With the giant Alibaba initial public offering coming closer to launch, investors are looking over their portfolios and could be selling off less-attractive stocks to make room for the Chinese e-commerce giant, Reuters reports. The IPO could top $16 billion and become the largest-ever tech offering. It is expected to launch as early as next month, with road shows starting after the Labor Day weekend. “Any company that didn’t meet expectations and give a rosy outlook is probably being considered as a sale candidate to make room for a name like this,” Jim O’Donnell, chief investment officer of Forward, told Reuters.

In geopolitical news, NATO is planning to set a more-visible presence in Eastern Europe in the wake of the crisis in Ukraine, the alliance’s secretary general said in an interview with six European newspapers. Anders Fogh Rasmussen said alliance members plan to balance the pressure of not wanting to escalate tensions in the region with a military buildup while at the same time presenting a united front to demonstrate the ability to respond quickly to any blowups in the region. He said proposals ahead of a NATO summit in Wales next week anticipated the pre-positioning of supplies and equipment at new bases but that it would not infringe on the alliance’s agreements with Russia, which have prevented substantial NATO buildups in the lands that joined the alliance after the collapse of the Soviet Union. Ukraine is not a member of NATO.

What is your view on NATO’s reactions to the tensions between Russia and Ukraine? Should the Western military alliance increase its assets in the region to show a strong sign to Russia? Should NATO invite Ukraine to join the alliance?

P.S. The wealthy investors I work with take the road less travelled. And there are a few other secrets that set the wealthy apart from average investors. In this FREE report, I’ll show you how to use them to grow your wealth in record time.

Bill Hall was one of the first financial professionals to attain the credentials of Certified Public Accountant (CPA), Chartered Financial Analyst (CFA) and Certified Financial Planner (CFP). He earned them by the time he was 34 years old.
Currently, Bill is the president, managing director and senior investment counselor of Plimsoll Mark Capital, a Maine-based firm that provides financial, tax and investment advice to wealthy families.

{16 comments }

Steve C.Wednesday, August 27, 2014 at 6:38 pm

Ukraine should get fast tracked into NATO so the nwestern world would be fully ready and justifiecd to blow Russia’s butt out of Ukraine!

Richard KWednesday, August 27, 2014 at 7:39 pm

Fast tracking Ukraine into NATO would be akin to reigniting the Cuban Missile crisis in the eyes of Moscow. From Ukraine’s northern border it’s only a 350 mile drive to the outskirt of Moscow or roughly the same driving distance from Cleveland OH to Washington DC . At low attitude, an F15 can travel 900mph or 15 miles in a minute or approx. 23 minutes for 350 miles

In the span of 150 years, Russian armies fought to the death against invading armies from Western Europe, 1812 against France, 1914 against the German & Austro-Hungarian Empires and 1941 against Nazi Germany. History is not loss on the Russian hardliners and nationalists. The thought of having NATO forces so close to Moscow would force Russia to react rashly and possibly invade Ukraine before the treaty takes effect. And if Russia does invade, does NATO get into a shooting war with a country with 8,000 nuclear warheads or are we naive enough to think that we can go to war with a nuclear power using conventional weapons only?

Anne GlynnWednesday, August 27, 2014 at 7:53 pm

If you are American, listening to the narrative dished out daily on the US media you believe that Russia is the villain in the piece. Smart people know this is a storm contrived and revved up by the US. Crimea was always part of Russia until it was given to Ukraine by an alcohol; soaked Russian President in a moment of madness. Most people there are Russian and speak the language. They willingly rejoined Russia again, much to the annoyance of the US. Crimea would have been a very nice base for Nato war ships and complete the plan to surround Russia. All this war mongering is American hype. Europe needs to cooperate and befriend Russia, as it was doing before the US decided it was the enemy when it did not support it on the Syrian issue. Edward Snowden being allowed to stay in Russia was the last straw for the US. If you do not do what the US says you pay! Imperialism lives again so God help us all. Pray tell me who will pay for all this war paraphernalia in the new Nato bases! There is no appetite for this in Europe and where will the foot soldiers come from?
The last thing on earth that Europe should do is to start sabre rattling. Cooperation and peace deals get better results.

john robertsWednesday, August 27, 2014 at 8:05 pm

NATO should have supplies in-place as Putin could invade Eastern Europe at any time.
Our fearless leader can’t see anything but a golf match or a fund raiser in the future.

Allen M. OliverWednesday, August 27, 2014 at 8:19 pm

It’s the KILLING Fields of Kosovo again
Now as then the EU folks can’t agree on the size of the table to sit around to discuss the issue
Obama has chosen to “lead from behind” which no action is a decision to take no action
Nothing will be done until it is well after the fact
Like when Italy stormed over Abbesinia and Salazie aked the League of Nations for help and none was forthcoming.
Salazie thanked them and told them “You Will Be Next”
You know the rest of that history as it was the beginning of WW2

hankWednesday, August 27, 2014 at 8:50 pm

I am unable to print out your report. Is that planned. I don’t have trouble with any other Weiss reports.
Thanks.

AL H.Wednesday, August 27, 2014 at 9:14 pm

Ukraine should NOT be brought into NATO. This would only result in another country which we (the US) would be comitted to defend if Russia continued to pressure. And of course, we foot the vast majority of the cost of NATO operations with money we DON”T HAVE. It’s time we stop trying to rule the planet, take care of our country and mind our own business.

jan strattonWednesday, August 27, 2014 at 9:17 pm

Putin is just making noise. Germany has to step in, not us. He needs friends not enemies. Let’s concentrate on us, not them.

Mike PWednesday, August 27, 2014 at 10:33 pm

Can you render an opinion on BDCS and it’s leveraged cousin BDCL? Would an ETF or ETN based on a basket of BDCs be appropriate for those of us that are inexperienced in rating the safety of a BDC?

vivian richardsWednesday, August 27, 2014 at 11:22 pm

The only right thing NATO can do is disbanded itself. NATO is a relic of the cold war, which ended ages ago. There is no reason for NATO to exist today other than as a trouble making organization.

People should not forget the fact that expansion of NATO to the east is at the root of problems the US has with Russia.

BRUCE STARKThursday, August 28, 2014 at 12:24 am

THE WEDESDAY LETTER HAD “OTHER DEVELOPMENTS OF THE DAY” EXCELLENT. GOOD LETTER TODAY.
I THINK WE HAVE DONE ENOUGHT DAMAGE TO UKRAINE BY OUR UNFILLED
WEAPONS PROMISES. WE CANNOT GET INTO ACTION IN ALL OF THE WARS
CURRENTLY BEING FOUGHT. NO, UKRAINE SHOULD NOT BE ALLOWED INTO
NATO.

DebbieThursday, August 28, 2014 at 7:12 am

Do BDC’s kick out K-1’s for reporting at Tax Time?

ianThursday, August 28, 2014 at 7:36 am

Is it,Here we go again,

Robert CalabroThursday, August 28, 2014 at 8:38 am

In 1994, the US, United Kingdom and Russian Federation signed the Budapest memorandom with Ukraine. In exchange for giving up its nuclear weapons, Ukraine was promised that its territorial integrety would be respected and protected. The Russians are in clear violation of this agreement. Nato’s response should be that we give the ukrainian government everything they need to defend themselves. Nato troups should be stationed in nearby countries so that they can respond to a Russian invasion. When we give our word, our word is our covenant, just like the ten commandments. How can we expect other countries to trust us if we do not keep our word. Lenin once said; ” when you encounter mush you move forward. when you encounter steel you stop!” Putin must encounter steel! If Ukraine decides to join Nato or adopt the Euro, that should be their choice, not ours or Russia’s. We have always said that we respect a countries right of self determination. Lets practice what we preach. Regards and God Bless, Robert Calabro.

mark SontagThursday, August 28, 2014 at 11:15 am

A very simple response must be made; bring back “MAD”. The Russians are barbarians and have breached the gates, they have broken agreements and we must do what ever we deem necessary to neutralize, or terminate the problem.

Boots on the ground should be European and all the former Soviet satellites should be anxious to put enough forces on the ground to stop the aggression. Weapons and military intelligence should be provided in force to destroy all the military forces acting against the Ukraine inclusive of Russia itself. Make them pay the price in blood for their acts. Putin is nothing, but a KGB bully and if he personally must be dealt with then lets just get it over with. Let us act as he has and the Russians have. God bless the United States of America and all freedom loving people and nations……